My friend bridged ₹2.9 L of ETH to an L2… and the tax office says he owe ₹1.2 L. He didn’t even sell

A friend if mine moved about ₹2,90,000 worth of ETH from mainnet to Base last June to dodge high gas. He snagged maybe ₹3–4 K in rebate tokens and called it a day.

Fast-forward to last Friday: an e-mail lands from the Income-tax Department claiming he under-reported a ₹1,98,000 capital gain. They’re treating the bridge like a full sale on mainnet and a fresh buy on Base, so with penalties and interest they want ₹1,18,400 payable in 30 days.

My friend fired back every proof imaginable—Etherscan hashes, inbound Base tx, screenshots of the bridge UI—but got the classic response: “Provide cost-basis documentation and KYC of the counter-party.” Counter-party? It’s a smart contract, bro. No PAN, no face—so the system flags it as an “unexplained credit,” and India’s VDA rules slap on a 60 % penalty by default.

He’s not alone. All week r/ CryptoTax and r/ IndiaInvest have been dotted with folks whose tax apps log every bridge or LP withdrawal as a taxable disposal. One guy bounced ETH to Arbitrum and back, never changed his wallet balance, yet his CSV showed ₹8 L in “profits,” and the notice bots ran with it.